Bitcoin in line with Treasury yields?- The Cryptonomist https://ift.tt/3skGbIB

Yesterday, Anthony Pompliano published a long article analyzing Bitcoin’s returns with those of US Treasuries. 

The Fed and interest rates

Taking for granted that the Fed will raise interest rates three times during 2022, Pompliano analyzes the possible consequences of such monetary policy measures on financial markets. 

He points out that it is generally believed that high-growth stocks and risk assets sell off when rate hikes occur. That’s happened several times before. 

Yet Pompliano points out that, for example, the great dot com bubble at the turn of the century was caused precisely by the Fed raising interest rates. 

The fact is that, in the case of massive sales of risky assets, it would be to be expected that Bitcoin would suffer the same fate. But according to the well-known crypto influencer, it is legitimate to have doubts about this. 

Bitcoin yields compared to Treasuries

He points out that the prevailing view is that Bitcoin is a risky asset with an inverse correlation with interest rates. At the same time, however, it raises the question of what might happen to the price of Bitcoin if it instead had less to do with interest rates and QE and more instead with the latest halving. 

For a while, the inverse correlation between, for example, tech stocks and government bond yields has played out exactly as one would expect; this inverse relationship is not what we see between Bitcoin and Treasury yields. 

In fact, Pompliano points out that we see the exact opposite. That is, the price of Bitcoin seems to be moving in tandem with Treasury yields. 

Pompliano cites a tweet by Caleb Franzen that shows a correlation between Bitcoin and 10-year Treasury bonds as far back as the mid-2020s, with a near-perfect overlap. 

The correlation between Bitcoin and Treasury bonds

According to Pompliano, should this trend continue, the prevailing view towards Bitcoin could be “misplaced,” and the price of BTC could benefit from the rising interest rates. 

Bitcoin hedging against inflation

If this happens, Bitcoin would be functioning as a hedge against inflation. 

Pompliano, however, stresses several times that these are only hypotheses. It will be necessary to wait for the real movements of the BTC price to understand if they correspond to reality or not. 

Behind such a scenario could be hidden that more and more people consider Bitcoin their reserve currency. Such a phenomenon could justify an abnormal behavior of the BTC price correlated to the Treasury yield.